Commodity Trade and International Risk Sharing: How Much Do Financial Markets Matter? / Harold L. Cole, Maurice Obstfeld.

By:

Cole, Harold L

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w3027.Publication details: Cambridge, Mass. National Bureau of Economic Research 1989.Description: 1 online resource: illustrations (black and white)Subject(s):

F - International Economics

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Abstract: This paper evaluates the gains from international risk sharing in some simple general-equilibrium models with output uncertainty. Under empirically plausible calibration, the Incremental loss from a ban on international portfolio diversification is estimated to be quite small--0.15 percent of output per year is a representative figure. Even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology. The paper argues that the small magnitude of potential trade gains, when coupled with small costs of cross-border financial transactions, may explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w3027 (Browse shelf(Opens below))	Not For Loan

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July 1989.

This paper evaluates the gains from international risk sharing in some simple general-equilibrium models with output uncertainty. Under empirically plausible calibration, the Incremental loss from a ban on international portfolio diversification is estimated to be quite small--0.15 percent of output per year is a representative figure. Even the theoretical gains from asset trade may disappear under alternative sets of assumptions on preferences and technology. The paper argues that the small magnitude of potential trade gains, when coupled with small costs of cross-border financial transactions, may explain the apparently inconsistent findings of empirical studies on the degree of international capital mobility.